We do not believe that compliance stops with the letter of the law; we believe that it includes all actions for winning the confidence of our customers and society. We are committed to enhancing both group-wide initiatives and independent initiatives by our group companies.

   Given the public-interest aspect of the securities industry, all Daiwa Securities Group officers and employees must continually maintain a strong sense of ethics, and contribute to the sound development of the securities market.
   We will maintain a self-purifying system at the organizational level, where we are able to independently discover and correct risks and problems in our duties by having each employee be highly conscious of compliance.

   Daiwa Securities Group Inc. plays a central role in compliance policy for the entire Group: it formulates the principles and vision for compliance for the Group as a whole; it collects information about compliance at each group company; and it creates a workplace environment and foments ethical viewpoints to enable thorough compliance. Meanwhile, each group company must comply with a different set of rules and regulations, due to differences in the types and details of their businesses. For this reason, the Compliance Department of each group company plays a leading role in setting detailed compliance regulations and response.
   The compliance regime of the Group as a whole is maintained and promoted by having both Daiwa Securities Group Inc. and each group company fulfill its respective role, and enhancing the collaboration between the initiatives of each.

   We introduced a Corporate Ethics Hotline in January 2003, through which employees can report problems in the workplace directly to either a corporate-ethics officer from Daiwa Securities Group Inc., or an outside attorney.
   When there is a report, we investigate the situation together with the head of internal administration supervisors and the compliance officers at group companies, while working to ensure that the whistleblower is protected. The hotline received 74 reports in fiscal 2006, up 50% from the 49 reports in fiscal 2005. We judge that this increase is due to a broader user base, thanks to the training concerning the hotline, and our commitment to respond to reports as quickly as possible, which increased recognition of and confidence in the hotline. Most of the reports deal with the workplace environment, and we believe that improvements to the workplace environment have been a benefit of the hotline. We remain committed to increasing confidence in the program and program recognition in order make the hotline fully effective at preventing issues, and enhance the program to promote its appropriate use.

Responses to reports made through the Corporate Ethics Hotline

   In addition to compliance training carried out on a regular basis, whenever there is a major incident we also conduct training in departments concerned, in order to prevent the occurrence of similar incidents in the future. We also produce topical content for our e-learning program that reflects changes in rules for screening sales promotion materials, the latest securities case studies, administrative sanctions, and the like, and utilize this content in our training.

   We have built a system of checks to prevent operation that create conflicts of interest between our company and customers, or between customers. Conflicts of interest occur, for example, when a company for which the Daiwa Securities Group is a lead manager makes a takeover bid for a company for which the Group is performing M&A advisory to prevent the takeover.
   Data of all existing and potential projects are recorded in the centralized database. The Legal & Compliance Department checks each project individually, and if it determines that there is a conflict of interest, it considers the conditions for proceeding, and in some cases will cancel the project. About 20% of the transactions checked in fiscal 2006 were identified as having potential conflicts of interest, and such remedies as revising the conditions were carried out in order for our company to continue with the project.